For BRICS, another first – Revenue heads meet in Delhi

Jan 21, 2013

Rajeev Sharma

specially for RIR

For BRICS, another first – Revenue heads meet in Delhi. Source: Flickr/MEAphotogallery

The grouping looks at preventing the base erosion and profit shifting through mutual cooperation by practices that involve abuse of tax treaty benefits and incomplete disclosure of information and fraudulent claims.

BRICS
nations are rapidly finding newer areas of synergy. Earlier this month their
National Security Advisors (NSAs) had held a first stand-alone meeting and
their health ministers had also met. Both meetings took place in New Delhi.

BRICS has
just made a new beginning – also in New Delhi – when their heads of the revenue
met for the first time to deliberate on issues of mutual concerns related to
tax administration, international taxation, transfer pricing, cross- border tax
evasion and tax dispute resolution mechanisms. The two-day meeting (January
17-18) produced concrete deliverables as the five-nation transcontinental
grouping affirmed their continued commitment to promote closer coordination and
cooperation in the area of tax administration and identified seven areas of tax
policy and tax administration to achieve this combined objective.

The
respective country delegations were led by Carlos Alberto Freitas Barreto,
Secretary, Federal Revenue of Brazil, Aleksey Overchuk, Deputy Commissioner,
Federal Tax Service of Russia, Sumit Bose, the Revenue Secretary of India, Xiao
Jie, Commissioner of State Administration of Taxation, China and Oupa
Magashula, Commissioner, South Africa.

The
Russian Template

Russia
has a deep and abiding interest in the area of transfer pricing and has been in
the forefront in various international fora on this front. BRICS is yet another
forum where Moscow has been pro-active in this context.

In July
2011 the Russian President signed a federal law that introduces new transfer
pricing controls in the country. The new rules, based on Organization for
Economic Cooperation Development (OECD) Guidelines, became effective on January
1, 2012, taking both taxpayers and tax administration to an absolutely new
legal environment.

Overchuk
has outlined the Russian template in this regard very candidly. At an important
conference of OECD held in Paris in September 2012, Overchuk had said that
Russia’s new legislation was meant to address domestic transfer pricing issue
and avoid the creation of profit centres in regions where the profit was not
actually created as these result in unfair distribution of revenue among
different regions.

“There is
a widely accepted view within the community of Russian
tax professionals that the new transfer pricing legislation is the
most significant change in the tax system of the country since
the introduction of the Tax Code in the late 90th,”
Overchuk had remarked.

It must
be pointed out in this context that the Russian view is that in an economy like
Russia’s, relying on the export of mineral resources for revenue, the absence
of effective tax administration of transfer pricing has presented a visible
problem. Further integration of Russia into the world economy, the
increase of international trade and a favourable outlook for WTO
accession have been important factors that contributed to Russian interest in
addressing this issue.

The New
Delhi Roadmap

The
BRICS’ revenue heads’ roadmap for the near future was outlined in their Joint
Communiqué which identified broad contours of their mutual cooperation in this
field. The document emphasises the grouping’s resolve to enhance their
synergies in development of international standards on International Taxation
and Transfer Pricing taking into account the aspirations of developing
countries in general and BRICS countries in particular.

The
communiqué recognises the importance of the economic and commercial links
amongst BRICS countries and the need to contribute to the strengthening of
these links. Other areas of mutual cooperation include strengthening the
enforcement processes, sharing of best practices and capacity building, sharing
of anti-avoidance and non-compliance practices and promotion of effective
exchange of information.

The basic
objective of BRICS’ cooperation in this particular sector is aimed at
preventing the base erosion and profit shifting through mutual cooperation by
practices that involve abuse of tax treaty benefits and incomplete disclosure
of information and fraudulent claims. The New Delhi communiqué of the BRICS’
revenue heads underlines their intent to together cobble up capacity building,
improvement of systems and sharing of resources to the area of tax
administration in a way that will benefit the people of BRICS countries.

In effect
this meeting carried forward the decision taken during a meeting of the BRICS
Finance Ministers and Central Bank Governors held in Washington DC on April 19,
wherein they decided to develop a cooperative approach on issues relating to
international taxation, transfer pricing, exchange of information and tax
evasion and avoidance.

Major
Decisions

The New
Delhi meeting threw up the following decisions of the BRICS revenue heads on
issues of tax policy and tax administration:

Contribute
to development of International Standards on International Taxation and
Transfer Pricing taking into account the aspirations of developing countries in
general and BRICS countries in particular.

Strengthen
the enforcement processes by taking appropriate actions for non-compliance and
putting more resources on international cooperation.

Sharing
of best practices and capacity building.

Sharing
of anti-tax evasion and non-compliance practices, including abuse of treaty
benefits and shifting of profits by way of complex multi-layered structures.

Development
of a BRICS mechanism to facilitate countering abusive tax avoidance
transactions, arrangements, shelters and schemes.

The BRICS
revenue heads expressed their concern at the erosion of the tax base by
practices that involve abuse of tax treaty benefits, incomplete disclosure of
information and fraudulent claims, and jointly agreed to work together to
address these concerns. They pledged to jointly prevent the base erosion and
profit shifting and also produce a paper on these subjects for mutual benefit of
BRICS countries.

Future
Scenario

The
intense activities of BRICS in diverse fields like security and health earlier
this month, and now in the revenue sector, is indicative of how quickly the
grouping is putting its act together in virtually every important area under
the sun. The recent New Delhi meetings project a new-found synergy among BRICS.
If it continues going at this rate, BRICS is all set to become a major
international force to reckon with.

The
writer is a New Delhi-based journalist-author and strategic analyst.